Warren Buffett is one of the richest people in the world, one of the world’s shrewdest, hardest working investors. He does his homework before he spends a dime.
As has been widely reported, Buffett more than doubled his ownership in Apple stock (was 59M shares on Dec 31, now up to 133M shares) so far this year. In yesterday’s interview with CNBC, Buffett lays out his logic. Compelling.
You can watch part of his more than three hour interview here.
From the official transcript:
When I take my great-grandchildren to Dairy Queen they bring along friends sometimes. They’ve all got a iPhone and, you know, I ask ’em what they do with it and how … whether they could live without it, and when they trade it in what they’re gonna do with it. And of course, I see when they come to the furniture mart that people have this incredible stickiness of — with the product. I mean, if they bring in an iPhone, they buy a new iPhone. I mean, they’re … it just has that quality. It gets built into their lives. Now, that doesn’t mean something can’t come along that will disrupt it. But the continuity of the product is huge, and the degree to which their lives center around it is huge. And it’s a pretty nice, it’s a pretty nice franchise to have with a consumer product.
And:
what I do know is when I take a dozen kids, as I do on Sundays out to Dairy Queen they’re all holding their Apple, they barely can talk to me except if I’m ordering ice cream or something like that. And then I ask ’em how they live their lives. And the stickiness really is something. I mean, they do build their lives around it, just like you were describing. And the interesting thing is, when they come into … when they come into get a new one, they’re gonna get they overwhelmingly get the same product. I mean, they got their photos on it and, I mean, yeah, I know you can … you can make some shifts and all that. But they love it.
And:
Apple strikes me as having quite a sticky product and enormously useful product that people would use, and not that I do. Tim Cook’s always kidding me about that. But it’s a decision-based … but again, it gets down to the future earning power of Apple when you get right down to it. And I think Tim has done a terrific job, I think he’s been very intelligent about capital deployment. And I don’t know what goes on inside their research labs or anything of the sort. I do know what goes on in their customers’ minds because I spend a lot of time talking to ’em.
Obviously, Buffett doesn’t base his buying decisions on anecdotal evidence. But I feel certain that observations like this trigger some switch that makes him dig deep into the financials. And clearly, Buffett likes what he found.
I was aware he was buying Apple, but not this much. Glad Buffet’s finally come around.
He was actually convinced to come around by a couple of new hires last year. He wasn’t bullish on Apple until they came on board.
Buffett was saying smart things about business and investing when I first started trying to learn about the stock market. I wish there were more billionaire CEOs like him.
To the last point, Buffett famously makes very quick decisions, based on very little information, even to buy entire companies.
He can do this because he has distilled the important qualities of a successful business into a few points: management integrity and effectiveness, basic back-of-the-napkin financials, and the degree to which a company’s product has a sustainable competitive advantage.
He is happy to make a “handshake” deal based on an hour or two on the phone, without so much as visiting a company or meeting with them in person, even when twenty or thirty billion dollars is being discussed.
In Apple’s case, the low valuation, Tim Cook’s management, and the product’s “stickiness” are enough. Only fairly recently have all three of these factors been in place.
Absolutely. Charlie Munger, his partner, is equally interesting but much less public.
Yeah, in my initial reading, one was rarely mentioned without the other.
Buffett’s also very quick to remind people of the gaps in his expertise. Try finding another guy that candid who’s half as successful, all while wading through a sea of posturing trash-talkers.
Some say it’s false modesty, but I don’t buy that. I think his humility is a “greatest generation” element, mostly absent from the boomers on and in today’s society, where attention-seeking is almost mandatory. I see similar attitudes a lot in smart folks his age when they are interviewed and in their writings.
I think it’s too easy to generalize by generation. I think his humility—whatever its source— is rare, period.
Culture changes over time, and people are largely the products of the culture they grow up in.
Americans who lived through the depression and WWII seem particularly to have been shaped by those experiences.
Compared to what? Everyone is shaped by their experiences and culture. Some experiences are common to many, some aren’t. You’re stereotyping.
Hey, let me try. I’ll carelessly extrapolate an entire generation from having observed my mother, aunt, and uncle. Based on them, I claim that every Jew who survived both the Depression and World War II are hoarding misers and closet atheists.
But I know that’s not true.
What generation are you from? Tell me so I can make a casual assessment of what you must be like.
Now you’re the one making the “easy” argument. Surely you must agree that while everybody is an individual, we are also powerfully shaped by cultural forces. The study of history is largely the study of social movements and cultural changes that have re-shaped societies. Surely it’s undeniable that certain conclusions could reliably be made about somebody from, say Victorian England; or from renaissance Italy – or from the depression-era US.
I understand the reflex to avoid even the mildest such generalizations, as their more sinister equivalents have been used as tools for subjugation and injustice. To take the extreme opposite position, however, is simply a denial of reality; and a harmful one, rather Orwellian, in my opinion, in its subtle, insidious obstruction of speech and therefore thought.
You’ve described my disagreement with you as “extreme” in the same breath as calling me “Orwellian” in my “insidious damping of speech.” I’d say your sophistry is in high gear.
I don’t deny the effects of major historical events upon whole populations. But I do know that there are many different ways to react to those events.
But by all means, let’s trash the boomers. Or any other group you feel like castigating—or should I say “subjugating”—with a cliché.